Scandinavian Working Papers in Economics
Working Paper Series,
Research Institute of Industrial Economics
No 926: Why Entrepreneurs Choose Risky R&D Projects - But Still Not Risky Enough
Erika Färnstrand Damsgaard, Pehr-Johan Norbäck (), Lars Persson () and Helder Vasconcelos
Additional contact information
Erika Färnstrand Damsgaard: National Institute of Economic Research
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Helder Vasconcelos: Faculdade de Economia, Universidade do Porto
Abstract: Entrepreneurs face higher commercialization costs than incumbents. We show that this implies that entrepreneurs will choose more risky projects than incumbents, aiming to reduce their high expected marginal commercialization cost. However, entrepreneurs may select too safe projects from a social point of view, since they do not internalize the business stealing effect. We also show that commercialization support induces entrepreneurship but may lead to mediocre entrepreneurship by inducing entrepreneurs to choose less risky projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship. Using Swedish patent citation data, we find empirical support for predictions of the model.
Keywords: Entrepreneurship; Innovation; Start-ups; Ownership; Breakthrough; Quality
JEL-codes: G24; L10; L20; M13; O30
41 pages, September 18, 2012
Full text files
wp926.pdf
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